Archive | January, 2013

Leveraging Outbound Marketing for Fundraising Campaigns

29 Jan

By Tom Crosby, Marketing Manager, LSN

As a branding, messaging and marketing tool, digital publications are unmatched in their ease of use, cost-effectiveness, and wide deliverability. Whether it is a monthly journal, a weekly newsletter, or a mailing targeted at a list of people you want to keep updated, the savvy life science marketing department will ultimately make use of this medium to gain exposure for their brand and deliver the message to your prospective marketplace.

The benefits of web marketing are as innumerable as they are beneficial; this is no truer for any industry than it is for the life sciences. By instantaneously connecting the entire range of professionals – from drug developers to business developers – the conversations that bring life-saving technologies to market are facilitated in time frames that were unimaginable just decades ago.

Recently, LSN helped a client with a targeted mailing in a fundraising campaign. The client is a drug developer with a novel treatment for an orphan disease for which there was previously no relief, short of disabling the patient’s immune system. The mailing, which went out to a vetted list of 300 new investor contacts, was aimed at developing a pipeline of investor candidates to help raise funds to complete the drug’s clinical trials.

The goal was to broaden the range of investors from VC’s and grants, to mid-level PE, family offices, foundations, and new corporate venture. And by the end of the same day that the mailing went out, there was a 20% open rate for the email (or 67 opens), with 7 actually clicking on the link to his executive summary provided in the email.  Three different foundations dedicated to the exact condition had even seen the call to action, and followed the links to his website.

Considering the Basics of Newsletters

Targeted mailings are only effective in special situations, however. One of the best methods for reaching your audience on a regular basis is some sort of digital canvass, followed up with a phone call canvass. Smaller firms often choose to go with a newsletter-type outreach to their target audience, because it works well to provide ongoing status updates regarding the progress of a company’s product development. At LSN, for example, we make it a weekly objective of ours to write about something industry-related; usually, it is wherever our work takes us throughout the week. The trick is to cover relevant, interesting, and useful information. With a little focus, the right topics inevitably come to light. After all, we are all daily consumers of media. If it interests you, there’s a good chance it will interest industry peers.

In reality, content is one of the easy parts of producing a newsletter. There are many other things to consider when launching your company newsletter that may seem insignificant, but can actually have a large impact on the success or failure of your web marketing campaign. For instance, when will you send your email: early in the morning, or after lunch? Do you wait for California to wake up, or catch Europe in their offices before the end of the day? And on what day of the week? These are just a few of the questions that you must ask yourself when beginning any online campaign. Failure to consider any of these things could mean your mailing gets buried, and the right set of eyes never sees it.

Another important aspect of your mailing campaign is whether you’ll facilitate the mailing in-house, or if you’ll let a third party handle the delivery. Until the last few years, the best option may have been the former. And for smaller operations with a smaller amount of targets to reach, it may still be; it isn’t difficult to manage a list of 500 emails, even with Microsoft Outlook. However, the advantages that third-party clients offer are vast, and they’re getting better all the time.

One of these advantages is flexibility. Doing an in-house mailing means that you either have to keep it simple, or have someone that knows HTML. Third-party sites like Constant Contact, iContact, and Benchmark – in addition to traditional HTML – offer the choice of using browser-integrated creation software. This gives you the opportunity to go as simple as an introductory letter, to as complex as an industry-standard newsletter, while maintaining a professional look and feel along the way.

The biggest advantage of using a newsletter hosting service, however, is using the integrated contact management tools. This covers everything from subscription management to performance tracking. Without help, these tasks can be fairly daunting, even for experienced users, because of the legal implications involved. And while it is interesting and useful to be able to track the success of your newsletter or targeted mailing down to the finest detail, if you are not 100% compliant with the law, your campaign will not get too far. The peace of mind alone is worth your monthly subscription fees. With the health of your contact list constantly being monitored, you are free to focus on the quality of your content and design.

If you are successful in keeping your content at a high level of quality, and don’t step on too many toes along the way, your mailings will eventually pay off. Like most things, it takes time, and a lot of patience; investors aren’t likely to make allocations based on a few well-written articles. However, email correspondence is absolutely vital, and by keeping yourself and your firm on the minds of the right people, your efforts will ultimately pay off in a big way.

Selecting the Right Kind of PE Partner for your Life Science Firm: Part 3 – Mezzanine Debt Funds

29 Jan

By Danielle Silva, Director of Research, LSN

For life science firms, choosing the right kind of private equity fund to partner with can be a difficult task, especially if the business owner does not wish to give up a great amount of their firm’s equity. This issue can be exacerbated if the firm needs further capital in order to grow the business, or possibly finance an acquisition. Last week, we looked at one source of expansion financing, which were private equity groups that use a “growth capital” strategy. This week, we will explore another source of growth financing – mezzanine debt funds.

Mezzanine debt is usually considered a kind of hybrid financing – financing which lays somewhere between debt and equity in a firm’s capital structure. Therefore, mezzanine debt has some characteristics of equity, and some characteristics of debt, falling between senior debt and equity. Some forms of mezzanine debt are convertible debt (meaning the debt issuer has the right to convert the debt into equity), and senior subordinated debt; mezzanine debt is accordingly more junior debt, which means that mezzanine debt issuers are paid back after senior debt holders. Mezzanine debt, however, is senior to equity.

Mezzanine debt is an attractive form of financing for life science firms because it allows business owners the opportunity to access more debt, and thus finance growth or expansion activities without having to give up a good amount of equity. In many cases, business owners will not have to relinquish any equity at all.

Because mezzanine debt is subordinated, however, it has a higher interest rate than senior debt. This is because it is perceived as riskier than senior debt; mezzanine lenders are paid back after senior debt holders. Senior debt holders are essentially the first group to get repaid in the case of liquidation, followed by senior subordinated debt holders (mezzanine lenders), then preferred stock holders, and finally the remainder of the equity stakeholders. Because mezzanine lenders are thus essentially second in line for repayment; there is a higher default risk for mezzanine debt.

One important fact about mezzanine debt is that it is only issued to firms that are cash-flow positive – meaning that mezzanine private equity groups would not issue debt to a pre-revenue company, such as a biotech therapeutics company in pre-clinical development. Mezzanine firms would, however, issue debt to a therapeutics company that, for example, has a couple of products on the market and was seeking to acquire a smaller biotech therapeutics company in order to grow market share.

There are many advantages to using mezzanine debt over other forms of financing; the first, as aforementioned, is that firms have less equity dilution with mezzanine financing than with other forms of private equity – even less so than with growth equity groups who typically do not take a controlling equity stake. Generally, mezzanine lenders will take an observer position (non-voting) on the firm’s board of directors, whereas growth equity funds typically are more operationally focused, and will take an active board seat.

Another advantage is that mezzanine loans are typically longer-term than other forms of debt, and require interest-only payments until their maturity date. Some of the downsides of mezzanine funding are that it is a lot more expensive than other forms of debt, with higher interest rates than other forms of financing.

Furthermore, mezzanine funds may sometimes require firms to give up a portion of their equity upside in order for the fund to achieve their desired rate of return on the debt instrument. Thus for life science firms who are seeking an alternative form of debt to senior debt, and are looking for a form of funding that requires little to no equity dilution, a mezzanine lender may be the solution.

Strategic Investors Aggregating Early Stage Assets

29 Jan

By Max Klietmann, VP of Research, LSN

Recently, two major trends have surfaced in early stage life sciences investment; the concept of the virtual pharma and private equity aggregation of early stage portfolios. According to several conversations I’ve had with these two categories of investors over recent months, these entities are beginning to employ a new strategy to take advantage of the plethora of promising early stage assets available. The basic idea is to grow a synergistic portfolio around a specific silo (indication, technology, etc.) over time. These portfolios of complimentary assets can then be brought directly to market (via third party distribution) or sold into large pharmaceutical companies, whose pipelines are increasingly suffering from a myopia leaving significant market opportunities unaddressed.

The concept is quite simple and intuitive: In the case of a virtual pharma, a group of highly seasoned life sciences and pharma experts raise capital to buy a portfolio of promising early stage academic assets, vet them, and shepherd them through clinical trials via a very lean model relying heavily on CROs and outsourced development. By focusing on only fast-moving, highly promising assets (and strategically divesting those that aren’t), a very lean pipeline is maintained. This keeps capital allocated exclusively on getting product to market as quickly as possible. Then, either through licensing or third party distribution via a rent-a-salesforce, the products are sold into the marketplace.

Similarly, highly strategic mid-market PE investors (who typically invest in large scale opportunities closer to phase II or III) are making very small $1-5 million investments spread across a very broad range of very early stage assets, including academic laboratory research. The assumption is that by maintaining a hands-on approach and scrupulous focus on performance, a fund is capable of maintaining a portfolio of companies that not only have a promise of success on an individual basis, but as a collective whereby the whole is more valuable than the sum of its parts.

This approach allows investors to follow big pharma and provide solutions to upcoming pipeline gaps. It is also a more attractive opportunity for buyers down the line, because it is a fully integrated and curated portfolio with a strategic orientation towards marketability. The end result is a more efficient flow of capital through the industry, stronger drug development pacing, and an improved return profile for equity holders in life sciences companies that constitute the portfolio constituents.

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